Analyst: Apple Poised To Be Most Profitable Company Ever

By Bryan Chaffin

Jun 18th, 2012 5:31 PM EDT

Apple is, “poised to be the most profitable company ever,” according to Topeka Capital analyst Brian White. The analyst told clients on Monday that fears that a US$500 billion valuation is serving as some sort of glass ceiling for Apple’s stock are not well-founded.

“We believe investors should think of Apple’s market cap potential in terms of trillions, not billions,” he wrote.

Shares of AAPL ended the day at $585.78, up $11.65 (+2.03 percent), on strong volume of 15.5 million shares trading hands. That gave the company a market capitalization of $547.7 billion, a lofty valuation only a handful of U.S. companies have achieved—more specifically, Cisco, Exxon-Mobil, General Electric, Intel, and Microsoft.

Each of those companies has crossed the $500 billion valuation mark at some point in their history, only to then retreat to much lower market caps over time. For instance, in late 1999, Microsoft crossed the $600 billion mark at the height of the tech bubble. Today MSFT is worth $250.7 billion, less than half of AAPL’s.

Exxon-Mobil has had the most resilience, but though that company passed the $500 billion mark in 2007, at the close of trading on Monday, XOM was valued at $388.6 billion.

As each of the other mega-valuation companies has gone, so fear and/or expect many Wall Street pundits, investors, and armchair quarterbacks Apple to go. Brian White told clients that this is one area where looking to the past isn’t necessarily a good way to predict the future.

He said that there are few comparisons between Apple and these other companies, and that this means Apple still has upside potential.

“Most of these companies enjoyed rich P/E ratios (except Exxon) when crossing $500 billion and the tech-related companies had monopoly-like market share positions, neither of which is the case for Apple,” he wrote.

Apple’s price-to-earnings ratio (P/E) is 10.4x (when accounting for Apple’s enormous cash hoard of roughly $100 billion), but when Intel, Microsoft, and Cisco hit their maximum valuations, they had P/Es of 80x. When combined, all five companies had an average P/E of 60X, which is itself almost six times that of Apple’s.

Another big difference is that Apple’s three tech predecessors each had dominant share, if not monopoly power, in their major markets when they crossed the half trillion mark. Microsoft had some 90 percent share of the PC market in 1999, while Cisco had more than 70 percent share of the networking market. Even Intel had 80 percent of the CPU market (all three companies maintain similar shares today).

“[In] comparison,” Mr. White wrote, “IDC estimates that Apple held just 4.7% of the PC market in (the first quarter of 2012) and 8.8% share in the mobile phone market.”

In other words, there is plenty of room for Apple to grow, according to the analyst, though he did note that Apple’s share of the media tablet market is quite high, at 68 percent.

*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.